Britain Braces for the Shocks to Come

For all the talk about Britain being on the threshold of a new politics, events following the recent election reached a somewhat familiar conclusion: a group of posh white guys thrashed it out in a room and then went to Buckingham Palace for the Queen's blessing.

The guys in question (and they really were all guys) were the Liberal Democrats, led by former Nation intern Nick Clegg, and the Conservatives, led by David Cameron, who after five days of haggling decided to form a coalition government.

Someone had to. For the first time in almost forty years, an election produced no clear winner. Indeed, each of the main parties lost in its own way. Despite the bad economy and a fractured government run by the most unpopular Labour leader in decades running the worst campaign, the Conservatives could not get a majority of the seats. The Liberal Democrats performed far worse than they and the pollsters had predicted and actually lost seats. Labour lost seats, vote share, power and its leader.

So now Cameron is prime minister and Clegg is his deputy. Whether this new government can last and for how long is an open question. They campaigned for different ends of the spectrum, with the Liberal Democrats at times to the left of Labour. Historically, their traditions are dissimilar but not antithetical.

Given the state of Britain's public finances, it is not difficult to foresee what will precipitate those events. The country is about to experience the most swingeing period of public spending cuts since World War II. The "short, sharp shock" that came to characterize the harshest years of Thatcherite Britain will now be overshadowed by another period of Conservative rule that promises to be longer, sharper and far more shocking.

The Tories want to make these cuts fast and deep. The new chancellor of the exchequer, George Osborne, has said he relishes the prospect. Whether the Tories' Liberal partners will stick by them when the going gets tough is unclear. What is clear is that the going will get very tough indeed.

Britain has a serious debt problem, principally from Labour's spending like a sailor without realizing that the ship was going down with the credit crunch. The annual budget deficit stands at 13 percent of gross domestic product, more than in Greece. Fortunately for Britain, the similarities stop there. Britain has less public debt, stronger economic growth, a dependable tax collection system, reliable economic statistics and—most important—its own currency and the ability to set its own exchange rates.

The truth is, none of the main parties have a mandate for these cuts because none were honest with the electorate about their plans for them. In a damning assessment released just a week before the election, the Institute for Fiscal Studies, an independent think tank, argued, "The opposition parties have not set out their fiscal targets clearly, and all three are particularly vague on their plans for public spending. The blame for that lies primarily with [the Labour] government for refusing to hold a spending review before the election." The IFS estimated that the Tories detailed less than 20 percent of the cuts they would need to fulfill their manifesto commitments, while the Liberals highlighted only a quarter.

The Conservative plan is not only unnecessary; it may well be counterproductive. There are several ways to skin a deficit that do not inflict maximum pain on the low-paid while cutting services to the needy. You can raise taxes on the wealthy, impose cuts over a longer period and print more money. Moreover, Britain has experienced a slower and more shallow recovery than most of the rest of Europe. The economy barely has a pulse. The Conservative proposals could kill it. Given the low growth and high unemployment rates, the threat of a deflationary spiral in Britain remains far greater than an inflationary one.

That there will be resistance to these cuts is beyond doubt. Strike activity was already growing under Labour and is bound to pick up pace now that the Conservatives are in charge. A Financial Times/Harris poll of swing constituencies before the election revealed that more than half the voters did not agree that the public sector should be cut back. Once the cuts arrive, that number is likely to grow. But what form the opposition will take, who will lead it and how much public support it will get remains to be seen.

Quite how Labour will perform in opposition is not yet clear. Like the Republicans here, Labour, having been in office for so long, will have little credibility when it comes to criticizing a new government on the economy. And given its past thirteen years of neoliberal orthodoxy, it will not be in any position to lead the fight.

While the British economic situation may not bear much resemblance to the one in Greece, the battle lines over the cuts ahead might. In all likelihood the fight over these cuts will not take place in Parliament but on the streets and in the markets. The markets will determine whether the scale and pace of the cuts are sufficient (with the ratings agencies waiting in the wings), and the unions and others will shape the resistance to them. Since Britain's economic situation is not as dire and its political culture not as militant, these confrontations will likely be less intense.

Shortly before the election, the governor of the Bank of England was overheard saying the measures necessary to implement the impending austerity will be so tough and unpopular that "whoever wins this election will be out of power for a whole generation."

Let's hope he's right but that a generation of Britons don't lose their livelihoods in the process.